Question

Creative Solutions sells office-organizing units for small businesses. The current selling price per unit is $ 320. Operating income for 2012 is $ 400,000 based on a sales volume of 12,000 units. Variable costs of producing the units are $ 100 per unit sold plus an additional cost of $ 20 per unit for shipping and handling. Creative Solutions’ annual fixed costs are $ 2,000,000.

Required1. Calculate Creative Solutions’ breakeven point and margin of safety in units in 2012. 2. In 2013, management expects that the variable production cost per unit of the office- organizing units will increase by 20%, but the shipping and handling costs per unit will decrease by 10%. Calculate the Creative Solutions operating income in 2013 if the selling price remains unchanged, assuming all other data as in the original problem. 3. Under the assumptions made in requirement 2, calculate the margin of safety in units. As a manager, would you be concerned? What actions, if any, might you consider taking in response and why? 4. Under the assumptions made in requirement 2, how many units must Creative Solutions sell to earn the same operating income as in 2012?